This commentary originally ran in the McAllen Monitor print edition on April 25,2016.

The Texas Supreme Court could release their ruling any day (possibly today) on most-watched school finance trial. The question before the Court is whether the public school system is efficient. The decision could substantially affect public schools in McAllen and statewide. Regardless, public schools must be reformed so that they are student-centered and competitive.

The Court defines efficiency as “effective or productive of results and connotes the use of resources so as to produce results with little waste.” Put simply, quality education results from limiting waste based on actual tuition.

Unfortunately, numerous expert witnesses during the trial noted that it’s impossible to know the true public school tuition. Only the amount spent on education is known, which was $61 billion, or $12,761 per student, in the 2014-15 school year. Therefore, the current system will never improve unless Texans can identify the market tuition.

I recently co-authored the paper Texas School Finance: Basics and Reformwith my colleagues at the Texas Public Policy Foundation. This paper provides taxpayers with clarity of a highly complex government-run school finance system. It also explains how Texas can achieve equity and efficiency in the education system by the student-centered, market-based approach of universal education saving accounts.

With 4.8 million students enrolled at public schools compared with only 375,750 students at accredited private schools, public schools dominate the schooling market. Very little competition from other forms of schooling and the power of the public purse make the public school system essentially a government-run monopoly that reduces the consumers’ well-being.

In addition, the public school system fails to have an efficient tuition because of a third-party payer system. While Texans typically think that local property tax dollars fund public schools, the truth is that state funding formulas determine how multiple revenue sources are redistributed to all school districts. This process, known as “Robin Hood,” is based on providing equitable school district funding.

Nevertheless, since the government funds schools, parents don’t know the true tuition because they don’t pay for it directly. Again, only the arbitrary amount the state spends is known.

Without market activity to determine the actual tuition, students will continue to receive subpar public schooling in many places statewide.

Fortunately, there is a solution: education freedom.

By providing this through education saving accounts, the market tuition can be known. Parents would receive an amount on a debit card that would be limited to education services to choose which ones best meet their child’s needs, allowing for a competitive, first-payer school system.

This means that market tuition at public schools as well as private and other education services must be posted for parents to determine their best option. These prices would create behavioral changes as parents and students seek out their best fit instead of being locked in a school based on their zip code.

The weighted tuition average at accredited private school organizations statewide is $7,848 per student. Therefore, the per student expenditure at public schools is 63 percent higher than at private schools, where there is an efficient tuition and mostly better outcomes.

Given competition, public and private tuition would likely converge at a level far below the current bloated amount of $12,761 and increase its quality, as has been shown in academic research.

It’s time for parents to know the actual tuition of public schools and have the choice to meet their child’s needs through education saving accounts. Per the state’s constitution, efficiency and equity per student will be achieved. Students in McAllen and statewide will improve their education outcomes and help take Texas to the next level of economic opportunity for all.

San Antonio Independent School District recently approved a big pay increase for many of its full-time workers, and the decision has a lot of people scratching their heads.

The district’s decision to arbitrarily raise its minimum hourly wage from $10 to $12 — a 20 percent pay raise not based on merit — comes at a difficult time for SAISD, which is not only struggling with soaring debt but is also seeing its student population slowly disappear.

While school district debt is not uncommon, the pervasiveness of public debt in SAISD is alarming. According to the Bond Review Board, SAISD’s debt totaled almost $1.1 billion in fiscal year 2015. That’s up from $723 million in 2010, which means the debt has jumped by roughly $375 million in five years. SAISD’s $1.1 billion in total debt works out to a whopping $20,330 per student.

Keep in mind all this debt is being put on the taxpayer credit card at a time when student enrollment is shrinking.According to the Texas comptroller’s Debt at a Glance transparency tool, the number of students enrolled in SAISD declined by 4.9 percent from the 2004-05 to the 2013-14 school year. Statewide student enrollment grew by almost 15 percent over the same period.

With debt up and student enrollment down, it’s easy to see that raising the minimum wage is a bad idea. But the economics behind the district’s decision doesn’t make sense either.

According to the law of demand, an increase in the price of something results in a decrease in the quantity consumed. In the private labor market, labor demand is based on multiple factors, but the most prevalent is a worker’s productivity. As productivity increases, the employer finds that there’s more output per worker, rewarding workers with a higher market-driven wage.

A minimum wage distorts this efficient outcome by artificially pricing labor based on politics instead of merit. Unfortunately, some economists and most politicians get this basic economics concept wrong. But not all.

Economist David Neumark recently noted, “The overall body of recent evidence suggests that the most credible conclusion is a higher minimum wage results in some job loss for the least-skilled workers.”

In other research, economists find the minimum wage redistributes income from low- to high-wage workers — the opposite of an intended goal. This happens because a higher minimum wage not based on market activity eliminates low-wage workers, substituting them with new technologies built and serviced by high-wage workers.

​Based on these destructive results, more than 500 economists recently signed a statement to not raise the federal minimum wage, a logic that applies to local governing institutions.SAISD’s artificial increase in the minimum wage defies basic economics and its dire fiscal situation. Merit-based pay increases instead of arbitrarily increasing pay for workers with different levels of productivity and experience at or below $12 per hour would best serve taxpayers, workers and students.

AUSTIN – Today, the Texas Public Policy Foundation released a paper by Center for Fiscal Policy Director Talmadge Heflin and Economist Dr. Vance Ginn on Article II of Texas’ budget. The paper, Texas Budget Trends in Article II, is the second of six in a series that examines trends in each article of the Texas budget.

“If the Legislature passes a $1.4 billion supplemental bill next session to backfill unfunded health-related expenditures, Article II for healthcare would surpass Article III for education as the largest budget item for the second consecutive year,” said Heflin. “Given the excesses in several functions within Article II and its growing share of the budget, this area of the budget should be closely watched as agencies make their requests and during the legislative process next session.”

“The 2016-17 budget increases Article II funds for Health and Human Services by 76 percent compared with only a 55 percent increase in population growth plus inflation since the 2004-05 budget.,” said Ginn. “This excessive budget trend indicates individual functions that increase by more than this key metric deserve scrutiny each session.”

To read the full report, visit: http://txpo.li/Texas-budget-trends-article-IIThe Honorable Talmadge Heflin is Director of the Center for Fiscal Policy at the Texas Public Policy Foundation, a non-profit, free-market research institute based in Austin. In the 78th Session, Heflin served as chairman of the House Committee on Appropriations and navigated a $10 billion state budget shortfall through targeted spending cuts that allowed Texans to avoid a tax increase.

Vance Ginn, Ph.D., is an Economist at the Texas Public Policy Foundation, a non-profit, free-market research institute based in Austin.

You’ve likely recently received this year’s property tax appraisal. If you own property in Travis County, after picking your chin up off the floor from the massive increase, there could have been a sense of delight or frustration.

​It’s nice that home values are reported to have increased, on average, 9 percent countywide for those looking to sell their home soon. But the vast majority of Austinites not looking to sell their home stress about paying more for inflated property taxes.

Fortunately, there are measures that state and local officials could take to put taxpayers back in the driver’s seat instead of local taxing jurisdictions and appraisal districts. The ultimate long-term solution must be to allow Texans the freedom to own their home by eliminating property taxes.

Last November, voters overwhelmingly approved a constitutional amendment passed by the Texas Legislature that increased the homestead exemption for property taxes supporting school districts by $10,000 to $25,000. This helps to provide welcome tax relief in a state that has the 14th most burdensome property tax system in the nation.

However, as values continue to rise this measure just lowers their property tax bill temporarily at best.

Consider an Austin home valued at $285,000. Given tax rates by each local jurisdiction and the appropriate exemptions, this home would need to increase by no more than 2 percent for no change in tax liability. However, the average 9 percent increase would force this homeowner to pay about $450 more.

Local property taxes levied statewide increased by 101 percent compared with only a 70 percent increase in compounded population growth plus inflation from 2000 to 2013. With soaring property taxes, homeowners deserve to have a greater voice in taming this burden.

A way to give them that voice is by reforming the rollback provision. This would require an automatic local election to approve tax rates that would increase property tax revenue by more than the lesser of either population growth plus inflation or 4 percent. This approach is gaining traction in the Legislature as it will provide greater budget transparency and help limit the rising tax burden.

Although raising the homestead exemption and reforming the rollback provision are good steps, this leaves the problem of paying rent to the government forever.

Republican primary voters noted their frustration with this burden by their response to a proposition last month that read: “Texas should replace the property tax system with an alternative other than an income tax and require voter approval to increase the overall tax burden.” It passed by a wide margin with 69.5 percent in favor.

Clearly, Texans want more control over their livelihood instead of giving it to local officials that may unnecessarily raise their taxes to pay for excessive spending. In addition, this would allow homeowners to be delighted when they receive notice that their home value increased because they get to reap the rewards instead of stressing about paying higher taxes.

To replace property tax revenues in the most efficient way, research shows that the most simple, transparent, and economic enhancing option would be to enact a reformed sales tax. If the sale of property and services taxed in at least one other state were added to the current sales tax base, then the rate would increase from 8.25 percent to 11 percent. Not much of a change when you consider that you get to keep substantially more money as a homeowner and renter without property taxes.

This swap would provide meaningful tax relief for property owners, and it would have the added benefit of strengthening the state’s economy by encouraging capital investment — the primary driver of economic growth and job creation. Estimates show that this could create as much as $63 billion more in personal income and 337,000 net new jobs over five years compared with the status quo.

A sales tax would also have the added benefit of resisting excessive growth in local governments while still paying for essential services that property taxes support today. For example, state sales tax collections increased by only 86 percent compared with the 101 percent increase in property taxes from 2000 to 2013.

Bottom line: There are solutions to reducing excessive property taxes. In the short run, voters should have more control by reforming the rollback provision. But let’s not take our eyes off the ultimate prize for Texans to have more opportunity to reach their full potential and finally own property by eliminating property taxes.

Heflin is director of the Center for Fiscal Policy at the Texas Public Policy Foundation. Quintero leads the Think Local Liberty Project at the Texas Public Policy Foundation.

This presentation provides information about Texas’ economy, labor market, and fiscal situation and key public policies for the 2017 Legislative Session that would increase individual liberty and economic prosperity.

AUSTIN – The Texas Public Policy Foundation released a paper today by Center for Fiscal Policy Director Talmadge Heflin and Economist Dr. Vance Ginn on Texas’ Article I budget. The paper, Texas Budget Trends in Article I, is the first of six in a series that will examine trends in each article of the Texas Budget.“The Article I budget should only fund essential government services such that the total budget does not increase by more than population growth plus inflation each session,” said Heflin. “Functions in Article I that increase by more than this key metric should be watched as agencies make their requests and during the legislative process next session.”“The 2016-17 state budget increases Article I for general government functions by 80 percent compared with an estimated 55 percent increase in compounded population growth plus inflation since the 2004-05 budget,” said Ginn. “This excessive budget trend indicates individual functions that increase by more than this key metric deserve scrutiny each session.”

To read the full report, visit: http://txpo.li/spotlight-budget-trends-in-article-iThe Honorable Talmadge Heflin is Director of the Center for Fiscal Policy at the Texas Public Policy Foundation, a non-profit, free-market research institute based in Austin. In the 78th Session, Heflin served as chairman of the House Committee on Appropriations and navigated a $10 billion state budget shortfall through targeted spending cuts that allowed Texans to avoid a tax increase.

Vance Ginn, Ph.D., is an Economist at the Texas Public Policy Foundation, a non-profit, free-market research institute based in Austin.

Check out this post on the bias of many behavioral economists. The field is currently geared towards more government intervention, but I don’t think that must be the case. There are helpful insights with their research, but many forget to consider the irrationality of policymakers.

Here are the results from a meta-analysis of over 300 papers in behavioral economics: “Our main findings are that 20.7% of all articles in behavioral economics in the ten journals contain a policy recommendation and that 95.5% of these do not contain any analysis at all of the rationality or cognitive ability of policymakers. In fact, only two of the 67 articles in behavioral economics with a policy recommendation contain an assumption or analysis of policymakers of the same kind as that applied to economic decision-makers. In the remaining 65 articles, policy recommendations are proffered anyway.”

The perfectly rational model is flawed, but the predictably irrational model is flawed as well.

I think people often act more rationally than they do irrationally given the information set (both monetary and emotional) that have available at that time. The worldview or even the model of the researcher/observer will tend to determine their opinion/result based on whether the actor observed acts rationally, not whether the person was actually acting rationally.We should believe people act more rationally than not, though certainly not perfectly rational, the following two pieces provide clear explanation. These are from Chicago School (dominated by Milton Friedman) and Austrian School perspectives, which I consider myself somewhere in between. Behavioral economics tends to fall much closer with the Keynesian school and the associated policy implications at this point of its infancy.I would suggest caution based on economic research and the way humans behave to satisfy our desires based on rational choices to put much credibility in behavioral economics and the thought that people act irrationally.

​Behavioral economics (at least at this point given those in the field studying it) tends to argue for more government intervention which is counter to the conservative/libertarian view. There is much to be enthusiastic about the field of behavioral economics and its implications, but there needs to be much more fleshed out before we accept it as gospel.

This commentary originally appeared in the print edition of the Midland Reporter-Telegram on April 17, 2016.

Low and falling oil prices are starting to take their toll on some Texas towns.

Moody’s Investor Services recently placed Midland city and ten other local governments that have been hit hard by the recent energy turmoil on watch for a possible credit downgrade. That comes on the heels of Houston’s actual downgrade by two credit rating agencies, both Moody’s and Standard and Poor’s, because of “high fixed costs” that includes outsized debts.

Oil’s collapse, while not welcome, is helping to shine a light on an emerging public policy threat facing Texas—too much debt propping up too much government.

This is a problem that was made clear at a recent Senate Finance hearing in Austin. Last month, staff with the Legislative Budget Board (LBB), the state’s chief fiscal advisors, informed members of the Senate Finance Committee that state and local debt outstanding, which refers to only the principal amount owed, had grown to a whopping $260 billion in fiscal year 2015. Include the interest component and Texas’ total debt soars to an unthinkable $415 billion, or roughly $15,000 owed by each and every Texan.

This rising red ink must be stopped before stressing families and wrecking the economy with higher taxes, especially at a time of potential bond credit downgrades and an uncertain economic future. By slowing spending, prioritizing debt payments, and providing increased ballot box transparency, those in Midland and all Texans can rest a little easier.

Dissecting state and local debt outstanding shows that there is $41 billion in state debt, $6 billion in revenue conduit that’s not technically a legal liability of the state, and $213 in local debt. Clearly, the major debt problem is at the local level where 82 percent of the total originates.

Evidence shows that while Texas has one of the nation’s lowest levels (45th) of state debt per capita. On the other hand, local debt ranks as the second highest next to California and the second highest in debt per capita next to New York among the top ten most populous states.

However, these amounts tell only part of the story. They don’t include interest owed that’s captured by debt service outstanding.

Collectively, the total is $415 billion, or more than $15,000 owed by every man, woman, and child in the Lone Star State. This must be resolved before we are all burdened with even higher taxes, resulting in fewer opportunities to reach our full potential.

One way to get control of this costly problem is by scrutinizing all budget areas because excessive government spending results in more debt. This should be paired with zero-based budgeting such that every program starts at zero and every dollar spent must be reasonably explained as effective and efficient.

Another valuable option is to prioritize debt to consider which order they should be paid if given the opportunity. This would help determine the useful life of projects paid with debt, the interest rate, and other variables to best use taxpayer dollars.

Last, but certainly not least, Texans must urge governments to do better regarding debt transparency. This could be done by publishing on a local ballot for bond proposals how tax bills will be affected, how much the bond will cost in principal and interest, and current debt service outstanding per capita. We’ve called this ballot box transparency.

By controlling spending, prioritizing debt payments, increasing debt transparency, Texans can have a better sense of whether state and local lawmakers are being good stewards of their tax dollars.

Vance Ginn, Ph.D., is an Economist in the Center for Fiscal Policy at the Texas Public Policy Foundation, a non-profit, free-market research institute based in Austin. He may be reached at vginn@texaspolicy.com.

AUSTIN – Today, the Texas Workforce Commission released Texas labor market information for March 2016. The Texas Public Policy Foundation’s Economist Dr. Vance Ginn issued the following statement:“Texas has been rather resilient to the collapse in oil and gas prices and slower global economic growth. Although net nonfarm employment declined by 12,000 jobs in March, job creation has been positive in 64 of the last 66 months,” said Dr. Ginn. “The economic headwinds are reflected in the decline of 7,500 jobs in the mining sector and 2,500 in the manufacturing sector last month. In addition, the professional and business services sector declined by 6,000, which are likely indirectly related to the mining industry downturn. Fortunately, Texas is a diversified economy with relatively fewer impediments from government regulation.​“During the last twelve months, states dependent on oil and gas activity have seen much weaker economic activity and job creation. For example, nonfarm job creation declined by 6,100 in Oklahoma, 13,200 in Louisiana, and 20,700 in North Dakota in that period. Texas, on the other hand, created a positive 185,000 jobs with private job creation of 152,300 that increased in all but the mining and manufacturing sectors. Texas’ job creation has helped keep the unemployment rate low at 4.3 percent, which has now been at or below the U.S. average rate for a remarkable 111 straight months. By continuing to find ways to get government out of the way and focus only on providing essential services, Texas will be the lighthouse of providing families with more prosperity that other states and D.C. should follow.”

Testimony before the Senate Finance Committee on Budget Transparency By Vance Ginn, Ph.D.

Chair Nelson and Members of the Committee:

My name is Dr. Vance Ginn and I am an economist in the Center for Fiscal Policy at the Texas Public Policy Foundation, a non-profit, non-partisan free market think tank based here in Austin. Thank you for taking the time today to investigate the important issue of improving budget transparency. My remarks today will focus on ways to provide Texans and their legislators with a clearer picture of how their tax dollars are spent.

The current strategic budget format of Texas’ budget makes it challenging for experts much less ordinary citizens to track funds in the budget. This format was first used in the 1993 appropriations bill with the goal of providing legislators with a longer-term view of budget goals beyond the two-year appropriation cycle.

Although this is a reasonable goal, the strategic budget format provides only broad goal statements instead of providing a line item for the funding amount of each agency program that the public could use to determine the effectiveness of their tax dollars. The problems associated with this format lead to reduced budget transparency contributing to less accountability and efficiency in the appropriations process.

For example, it was clear in the 1989 appropriations bill that the Legislature appropriated $2.9 million for legal services and $26.2 million for enforcing tax compliance in field operations. However, there was no way to determine these line items in the 1993 appropriations bill—or thereafter. One could determine from the 1993 appropriations bill that $177 million was appropriated for tax compliance and within that number was $98 million for “Ongoing Audit Activities,” but it is not possible to see how much was appropriated for legal services.

The lack of transparency poses a major challenge for taxpayers and legislators. By obscuring the amount of funds approved for each agency program or service, there is little incentive to remove programs that are ineffective because it is almost impossible to single them out. This makes it difficult for Texans to communicate with their legislator on what spending to vote for and makes it difficult for legislators not directly involved with writing the budget to determine their spending priorities.

To overcome the shortcomings of the strategic budget format, the state should convert to a program-based budget format. The budget should be written so that each agency’s income and expense is listed by program, as is done in the agency’s own internal budget. In addition, the source of funds should be listed for each line item. This change is a way to simplify the budget process for taxpayers and legislators to review programs that may need to be eliminated, reduced, or increased and more easily identify and deal with any waste, fraud, and abuse.

During the 82nd Texas Legislature, HB 2804 and SB 1653, along with the first part of SB 1433 during the 84th Legislature that did not receive a hearing, would have taken steps toward program-based appropriations. Although neither bill passed, a scaled-down version of HB 2804 placed in Section 34.06 of Senate Bill 1 directed the Legislative Budget Board (LBB) to put program-funding details online. This contributed to the development of an online application that presents the budget in a program-based format on the LBB’s website. This provides an example of what the program-based budget could look like.

While this online application provides valuable information, it is updated months after the appropriations bill is approved, providing neither taxpayers nor legislators with timely budget details on specific programs within state agencies during the appropriations process.

Our second recommendation remedies this issue by requiring budget information to be online in real time or near real time throughout the budget process. Taxpayers would be able to access past spending for each budget line item along with the proposed appropriations levels for the upcoming biennium. If it is not too cumbersome, the data could be originally posted when state agencies submit their funding requests, then updated once appropriation bills are drafted and filed. Updates should be made online throughout the legislative process as changes are made during hearings and after final adoption of the appropriation bill. This information should be available in an online application and downloadable as a spreadsheet.

It is reasonable to expect the Legislature to provide transparency and accountability of taxpayer dollars so Texans understand the benefits achieved with their money. As the next session approaches, the Legislature would do a great service to Texas taxpayers and legislators by converting from a strategic budget format to a program-based budgeting layout and provide budget information online in real time throughout the budget process. Until this is accomplished, we recommend the LBB put the program-based budget format online throughout the legislative process.

In summary, the Foundation recommends the following to achieve increased budget transparency:

Convert from the current strategic budget format to a program-based budget format.

Post budget information throughout the budget process online so that it will be available to Texans and legislators in near real time.

Thank you for your time and I look forward to answering your questions.

By Dr. Vance Ginn & Kiara PillayApril 15th is the day few of us look forward to: Federal Individual Income Tax Day.

Fortunately, there is a day we can reluctantly look forward to: Tax Freedom Day.

Tax Freedom Day is the day when the nation has worked long enough to pay for federal, state, and local taxes for the year, according to the Tax Foundation.

This year, Americans will spend 31 percent of the nation’s income on all taxes, including $3.3 trillion in federal taxes and $1.6 trillion in state and local taxes. This means that Americans will not pay almost $5 trillion until the Tax Freedom Day of April 24th. To put it bluntly, we work for governments for the first 114 days of the year—one day earlier than last year, due to lower federal tax collections.

Texas’ more friendly tax code keeps Texans working only until April 17th to pay all taxes. Although Texans lost four work days compared with last year when the Tax Freedom Day was April 13th, Chart 1 shows that Texas ranks 20th for having the shortest period of work days to pay federal, state, and local taxes. Mississippi has the earliest Tax Freedom Day of April 5th and Connecticut has the latest day of May 21st.Chart 1: The Average American Works 114 Days to Pay for All Taxes—Tax Freedom Day is April

The report notes the following: “The latest ever Tax Freedom Day was May 1, 2000, meaning Americans paid 33.0 percent of their total income in taxes. A century earlier, in 1900, Americans paid only 5.9 percent of their income in taxes, meaning Tax Freedom Day came on January 22.”

The more time we work for the taxman (as noted by the Beatles), the less time we have to do productive activities.

Last week, the governors of California and New York signed bills that would eventually create a minimum wage of $15 per hour in those states, almost double Texas' minimum wage, which hasn't moved in seven years.

According to Texas law, the state will always maintain the same minimum wage set by the federal government. Right now that number has been fixed at $7.25 since 2009.

Garrett Groves, Director of the Economic Opportunity Program at the Center for Public Policy Priorities said $7.25 is not enough for the average worker in Texas to get by.

“If you work full time on a minimum wage job, you'll bring home around $15,000 a year, which is not much certainly,” Groves said, “and you need almost twice that just to pay for housing, for food, for health care and transportation costs. And you'll need more than that if you are trying to support a family on that amount.”

Groves led the charge during the last legislative session to bump the minimum wage in Texas to $10.10. According to his report, “It's Time to Raise the Minimum Wage in Texas.” This is the amount needed to support a family in Texas on a minimum wage salary.

“Many of us were surprised that it is a quarter of the workforce that would be affected by minimum wage increase to $10,” Groves said. “So that's one out of every four workers or two and a half million people make less than that amount of money.”

The proposal didn't make it past a discussion on the house floor, but Groves said he plans to bring it up again in the upcoming legislative session.

“There will be legislation that will be proposed,” Groves said. “The dollar amount will probably go higher than $10.10.”

However, many republican lawmakers have expressed their concern for raising the minimum wage. U.S. Congressman Randy Neugebauer (R-Texas) said he doesn't think a wage hike would be good for the overall economy.

“I think it is a disincentive for businesses to bring in people who are you know, first time in the job market, give them training so they can be a more productive member of that firm,” Neugebauer said. “So I think the government setting prices for anything is not good policy.”

Dr. Vance Ginn with the Center for Fiscal Policy said raising the minimum wage in Texas would hurt the state's economy.

“Really what we are doing by raising the minimum wage and reduce the number of jobs available,” Ginn said. “We're reducing their opportunity to move up the income spectrum and to be more prosperous over time.”

Ginn said the biggest reason why a wage increase in Texas is not as necessary as it would be in California is simply the difference in cost of living.

“California is about 45 percent more expensive,” Ginn said. “Their cost of living is about 45 percent more expensive than in Texas. And so that means they can buy a lot less, even whenever they are still earning a higher amount.”

The discussion surrounding minimum wage has also hit the presidential campaign trails. Hillary Clinton said on Sunday that if elected she plans on raising the federal minimum wage to $12.

“It's important to point out that there are people who don't believe that the minimum wage should be raised,” Clinton said. “In fact, Donald Trump has said that wages are too high. And a lot of members of his party agree.”

AUSTIN – Texas Public Policy Foundation Director of the Center for Local Governance James Quintero and Economist Dr. Vance Ginn issued the following statements on the San Antonio Independent School District Board’s approval of a minimum wage increase for all non-exempt, permanent, full-time employees for the 2016-17 school year. The increase in the hourly rate from $10 to $12 is tantamount to a 20 percent pay raise and comes at a difficult time for the district’s finances.

“San Antonio ISD’s decision to hike the minimum wage by 20 percent is mindboggling. The district is deeply in debt and it’s losing student enrollment,” said James Quintero, director of the Center for Local Governance. “According to the latest debt data, SAISD owes more than $1 billion right now. If the district has extra money in its budget, then it ought to be going to pay down this monstrous sum. In addition, the district is also seeing its student population in decline. From the school years 2004-05 to 2013-14, the district’s student enrollment declined by 4.9 percent, while at the same time the rest of the state’s enrollment grew by almost 15 percent.”“Defying basic economics and their dire fiscal situation, San Antonio ISD unfortunately raises workers’ pay based on politics instead of merit,” said Dr. Vance Ginn, economist with the Center for Fiscal Policy. “Given the limited taxpayer dollars the district has available, providing merit-based pay increases per worker instead of increasing pay for workers with different levels of productivity and experience that are at or below $12 per hour would best serve taxpayers, workers, and students.”

The Legislative Budget Board (LBB) recently presented updated information about state and local debt in Texas for fiscal year 2015. These data show that state and local outstanding debt is $259.5 billion with $41 billion in state debt and $6.1 billion in revenue conduit (“issued by state entities on behalf of third parties and is not a legal liability of the state”) (see Chart 1), and $212.4 billion in local debt (see Chart 2).

While this is valuable information, “debt outstanding” refers to just the amount of upaid principal on a debt that will continue to generate interest until paid off.” A more accurate representation of Texas’ full obligation, or what their tax dollars could ultimately pay, is “debt service outstanding” which is defined as “the amount that is required to cover the repayment of principal and interest on a debt,” according to the Texas Bond Review Board(pg. 119).When you consider debt service outstanding, the data by the Texas Bond Review Board paint a much more costly picture.Instead of the $47.1 billion, or roughly $1,700 per Texan, reported in debt outstanding for the state and revenue conduit, the amount of state debt service outstanding is $77 billion, or about $2,800 per person. This means that the true debt that Texans are on the hook for is 63 percent higher than the reported debt outstanding.While it’s true that Texas ranks relatively well as having one of the lowest levels (45th) of state debt per capita nationwide, that’s not to say that something shouldn’t be done about state debt. Senate Finance Chair Jane Nelson made a valuable recommendation at a recent committee meeting to prioritize state debt to consider which order debts should be paid off if given the opportunity.The 100-pound gorilla in the room is not state debt but rather local debt.The principal owed on local debt ranks as second highest next to California and local debt per person ranks second highest to New York among the top ten most populous states. Adding to this red ink is local debt service outstanding that has reached an exorbitant amount of $338.4 billion, which is up $30 billion in just five years, bringing local debt per person up to around $12,250 per Texan.Combining state and local debt service outstanding, the total is $415.4 billion, or more than $15,000 owed by every man, woman, and child in the Lone Star State. That substantial amount must be resolved in some fashion before we are all burdened with even higher taxes and fees, resulting in fewer opportunities to prosper.To combat a greater financial burden, Texans must urge the government to do better regarding debt transparency. One way would be for lawmakers at the state and local level to publish more details about their debt amount, particularly the debt service outstanding and what that means for taxpayers. This idea has been advocated by the Foundation through what’s called ballot box transparency, as noted in the Forbes piece above.

Specifically, this would include providing more information about a local bond proposal on a local ballot such as (1) how their tax bills will be affected, (2) how much the bond will cost in principal and interest, and (3) local debt service outstanding per capita.By increasing debt transparency and prioritizing which should be paid first, Texans can have a better sense of whether state and local lawmakers are being good stewards of their tax dollars.

IntroductionAs the U.S. presidential election draws closer, politicians and voters are considering different ways to reignite a depressed economy and labor market during a historically weak economic recovery. At the heart of this is a debate between extractive, or progressive, institutions that forcefully redistribute resources and inclusive, or free market, institutions that allow individuals to satisfy their own desires through voluntary transactions.

The U.S. was once the envy of the world as it held the bronze prize in economic freedom in 2000, according to the Economic Freedom of the World Index published by the Fraser Institute. After years of government intervention in the economy and our daily lives, this ranking has fallen to 16th behind Taiwan, resulting in lackluster economic growth and job creation.

This decline precipitated from policies attempting to stabilize the economy through unprecedented fiscal and monetary actions. In fact, the current recovery looks to be one of the weakest on record with average annual growth of only 2.1 percent with no relief in sight. The direction of public policy must radically change.

Federal spending has increased by 27 percent since the fourth quarter of 2008, when the financial crisis took its greatest toll. This spending included bailing out banks and an almost trillion-dollar stimulus package contributed to an almost 80 percent increase in the national debt to $19 trillion. This debt now exceeds all of the country’s economic output. Though the sequester recently restrained spending, it has expired and didn’t correct the massive increase beforehand.

In December 2008, the Federal Reserve took historic action by lowering the federal funds rate to the range of zero to 0.25 percent and multiple rounds of bond-buying programs called quantitative easing. These actions were primarily intended to keep interest rates low to stimulate the economy.

A common benchmark for the direction of the federal funds rate is the Taylor rule, named after the Stanford economist John Taylor, that calculates the rate based on economic measures. The rule indicates that the Fed left the rate too low for too long during the mid-2000s, contributing to the housing market boom and bust, and has now left it lower than it should have been since 2010—with the current calculated rate of around two percent. After the previous lessons of failed policies, the Fed would be wise to return to a more rules-based approach that misallocates fewer resources.

Supporters of these policies cheer the drop in the unemployment rate from 10 percent in October 2009 to 5 percent in March 2016. But this measure misses the large number of people who have dropped out of the labor force and those working part time but would like a full-time job, which when added to the total unemployed brings the current underutilization rate to near 10 percent.

Collectively, these policies have misdiagnosed the U.S. economy. There is less economic activity with fewer dollars in the private sector due to higher taxes, more government debt, and more dollars flowing to unsustainable projects from excessive monetary easing. It’s no wonder that the U.S. has dropped so far in its ranking of economic freedom and Americans have been left to suffer.

Fortunately, the system of federalism provides an opportunity for a laboratory of state competition within an umbrella of federal policies. In search of a more free market model that would reward risk-taking and entrepreneurial activity, I recently published the paper “A Labor Market Comparison” at the Foundation’s website www.texaspolicy.com comparing economic freedom and labor market measures among the largest states—California, Texas, Florida, and New York—and U.S. averages during the last 15 years.

Ranking third in economic freedom and having the best labor market results compared with these largest states, Texas acts as a model. This high ranking isn’t an accident as Texas has kept taxes low, never enacted a personal income tax, and passed sensible regulations. These factors combined define the Texas model.

This model helped support the creation of 73 percent of all new nonfarm jobs in the U.S. from January 2000 to December 2014. Although critics often shrug these off as low-paying jobs, the inflation-adjusted private sector pay has been 67 percent higher than the U.S. average during that period with many more jobs added in high wage jobs than low wage jobs in the state and compared with the rest of the U.S.

The progressive policy prescriptions in D.C. and California continue to fail, especially regarding energy policy, which is what I’ve been asked to discuss today. These failures include the overbearing EPA, the lack of approval regarding the Keystone XL Pipeline, funding of uneconomical forms of energy, and the overall war by progressives on fossil fuels. Continuing down this path is one that will make Americans poorer, less productive, and more dependent on the government, which could be part of the progressive plan.

To renew the American dream, presidential candidates should consider similar free market measures taken by some states, particularly those in Texas. By providing inclusive institutions that allow free markets to work and support prosperity rather than extractive ones that redistribute resources and hinder progress, the American Dream that’s alive and well in Texas can be available for Americans nationwide.

Free Market Energy PolicyThe world’s energy landscape has radically changed within the last decade because of surging production of oil and natural gas in the U.S. Unimaginable not too long ago, the U.S. is now the world’s largest producer of petroleum and related liquid fuels. More than three-fourths of the increased global oil production in the last decade is from domestic oil fields, contributing to a drop in our oil imports by roughly 60 percent since 2007.

This sea change is the achievement of a mix of innovative technologies, known collectively as hydraulic fracturing, applied by small and independent oil companies in multiple states. The shale revolution has been so successful that it has produced a large surplus of crude oil. The Energy Information Administration forecasts that there could be as much as 3.2 billion barrels of global oil inventory by the end of 2016. There’s been so much oil produced in the U.S. that there are barrels of oil parked in tankers in the Gulf of Mexico and in train cars until it’s more profitable to sell.

For our country to benefit from the colossal energy wealth now at our fingertips, the end of the antiquated 40-year old oil export ban starting this year is a step in the right direction. Tankers have now exported oil to other countries at an initially slow pace, but this is likely to pick-up as oil contracts run out for other countries and those countries find it in their best interest to purchase crude at a discount based on the West Texas Intermediate crude oil price.

Although this step provides a positive path in the energy arena regarding a source of energy that is portable, dependable, and affordable, there’s much more to do. Unfortunately, the Obama administration and many states have taken it upon themselves to make it more difficult to produce fossil fuels as renewables are propped up as a savior. This approach, if taken to its logical conclusion, will fail, as has been the case in Europe. We must rethink how we produce energy including how we can better allow free markets to allocate resources most efficiently rather than the current path of government manipulation without complete knowledge. This path towards greater dependence on free markets is one that will provide a brighter and more prosperous future.

Energy Revolution from Entrepreneurial ActivityThe abundance of energy, especially fossil fuels, has transformed the world, particularly since the Industrial Revolution, helping bring more people out of poverty faster than in any other time in recorded history.

Economics is the study of human action and interaction whereby scarce resources are used to satisfy individual desires. Entrepreneurs are a vital part of this process in satisfying our desires as their ingenuity transforms markets into something very few thought possible. The shale boom is a terrific story of economic success.

Entrepreneurs helped create an environment conducive for the shale boom to bless us with abundant, affordable, and portable fossil fuels that provide efficient energy to satisfy our desires on a daily basis. Even still, with many of the cutting-edge fracking processes coming to fruition in the early 1980s, the price of oil plummeted during that decade making it not profitable to use these, at the time, expensive drilling techniques.

Things began to change during the 2000s. Not only did the techniques become economical, as entrepreneurs continued to work to bring down the cost of fracking, but also the price of oil and natural gas were such that it was profitable to frack.

The steady climb of oil prices during the 2000s, particularly in late 2007 and 2008 when the price of WTI hovered around $140 per barrel, there was plenty of profit motive using these more expensive fracking methods. Natural gas production that includes gross withdrawals and production took off around that time with production increasing by 31 percent from January 2008 to August 2015. Natural gas production was really the first round of the shale boom.

That didn’t quite transfer to an increase in oil production as the price of oil plummeted during the Great Recession to a low of about $35 per barrel in early 2009. It wasn’t until around the Arab Spring in early 2011 when oil prices recovered and were topping $90 per barrel and then reaching above $100 per barrel in March 2011.

Since then until the latest EIA data in December 2015, oil production per day is up 65 percent to 9.3 million barrels, which remains near the record high in late 1970 of 10 million barrels per day and the latest high of 9.6 million barrels per day in April 2015. This is in spite of the substantial drop in oil prices, showing the high level of efficiency of those wells online.

Texas has been a major contributor to this shale boom. Oil production per day in Texas is up 150 percent to 3.3 million barrels since March 2011 to December 2015, contributing to 55 percent of the increase in U.S. oil production during this period. Again, despite the drop in oil prices, oil production so far has not fallen off a cliff as those efficient drilling rigs remain in operation with a drop of 304,000 barrels per day since the record high in March 2015 of 3.6 million barrels.

It’s important to note that this drilling activity has been a bright spot in an otherwise dismal economic recovery. The U.S. labor force participation rate remains near lows not seen since the 1970s, but let’s somehow cheer the 5 percent unemployment rate—even though the more realistic underutilization rate sits at near 10 percent. The push to end the production of fossil fuels by the Obama administration is a push to end much of the prosperity that’s been created during the last decade.

Consider total civilian employment since the Great Recession started in December 2007. Texas has added 1.6 million new jobs while the rest of the U.S. has added 3.2 million. In other words, Texas has created 37 percent of all new civilian jobs in the last eight-plus years. The rest of the U.S. didn’t turn positive from massive job losses until January 2015 and didn’t surpass Texas until November of last year. Of course, these have not all been oil and gas jobs as Texas is a highly diversified economy with less than 3 percent of the labor force employed directly related to the oil and gas sector and less than 15 percent of the entire real economy. It was 5 percent and 21 percent, respectively, in the 1980s.

Texas has certainly felt a pinch from the lower oil prices as real GDP increased by less than half of one percent in the second and third quarters of 2015, contributing to slower annual job creation of just 1.4 percent. There have been almost 100,000 combined job losses in the manufacturing and mining sectors during the last twelve months through February. However, Texas has added nonfarm jobs in 64 of the last 65 months and the 4.4 percent unemployment has been at or below the U.S. average for 110 consecutive months.

By keeping a high level of economic freedom, which Texas ranks third in the recent Economic Freedom of North America report by the Fraser Institute, Texas will continue to be able to weather this challenge and others in the future. This is something that those in other states and D.C. should try to emulate. By remaining fiscally sound, Texas families and small businesses will continue to prosper.

What’s Holding the U.S. Back from Reaching Its Full Energy Potential?The solution for a more prosperous nation is to facilitate the ingenuity of entrepreneurs and let states have more discretion over what may work best there instead of a one-size-fits-all approach that fits none. Entrepreneurial activity and free markets, after all, is what led to the shale boom, and other forms of advancement throughout human history. So what are the steps that are necessary to create this prosperous and energy rich future for America?

The first was taken at the end of 2015, which was to allow exports of crude oil. As noted previously, this may take some time to reap major benefits, but the marginal benefits of this are likely substantial. There are already huge construction projects taking place at the port in Corpus Christi, Texas, where the first tankers shipped, to export more oil and liquefied natural gas.

Policies made on faulty science and the lack of looking at the true costs of EPA regulations are widely viewed as preventing the economic recovery that Americans want. A better solution could certainly be private regulation, end of the EPA, and a greater focus on regulation at the state level, but this will not happen overnight.

With that in mind, we should consider the following in the meantime: allowing drilling on federal lands; building more refineries; ending all subsidies for energy sources; approving construction of pipelines to build a robust national network of pipelines; reducing the EPA’s overreach by letting states do what works best for them, building more nuclear power plants, and ending state and federal renewable energy standards.

The best path forward for economic growth and prosperity is for the government to get out of the way, especially when it’s costly for Americans, as in the energy sector.

It’s truly remarkable that the Malthusian argument that society will one day return to a level of subsistence as the population grows hasn’t held true through the power of entrepreneurs to innovate. Indeed, ‘peak oil’ and ‘peak gas’ concerns have been waylaid by reality. Therefore, if we do not produce it here, production will happen elsewhere, many times in places that have worse production techniques to provide a safe, pollution-free environment and in places that aren’t friendly with us—leading to less peace and prosperity.

By following these solutions and others that allow free markets to lead the way instead of governments, the American Dream can once again seem not so far out of reach for Americans. This will also help to improve the federal government’s fiscal problem as we spend less on wasteful projects and regulations.

Finally, I’d like to call your attention to a new book being released on May 23rd called Fueling Freedom: Exposing the Mad War on Energy co-authored by Steve Moore at the Heritage Foundation and my colleague Kathleen White at the Texas Public Policy Foundation. It includes the history of how fossil fuels have been a key contributor to economic prosperity and provides more information about these policy proposals and more. I hope you will take time to read it.

​Thank you for the opportunity to speak here today. I look forward to answering any questions you may have.

Vance Ginn, Ph.D.​#LetPeopleProsper

I'm a free market economist based on the teachings of Chicago and Austrian schools of economics. I'm a classical liberal with interest in removing government barriers to competition to let people prosper. I grew up in Houston, Texas where I was a hard rock drummer who went on to be a first generation college graduate from Texas Tech University. I'm a recovering academic who now works at the Texas Public Policy Foundation in Austin.